Section 5 – Introduction to Investment Avenues

Table of Contents

Equity Shares

Equity means the share capital of a business. Price of shares keeps on fluctuating and carries no guarantee of returns. The market value of a company’s shares is determined by the price another investor is prepared to pay for them. Shares are traded on the stock exchange Investor is required to open a Demat account for such investments.

Bonds and Debentures

A bond is a financial instrument issued by the government agencies and corporates. It is generally secured with collateral and carries a lower risk.

A debenture is a debt instrument issued by companies to raise the funds on a long-term basis.  It may be secured or unsecured by collaterals. 

Broadly both the instruments are similar except the fact that bond carries higher security. Bonds may be good investment for investors looking for a fixed income. It generally offers a higher rate of interest as compared to other similar products like Bank & Post office fixed deposits.

Bank Term Deposits and Recurring Deposits

Term deposit in a bank/post-office is a traditional method of investment and still very popular among the investors who consider safety of money at the top. Investors may deposit their savings in a bank Fixed/term deposit account. Tenure and maturity amount is generally fixed in such deposits.

Recurring deposit account is opened for a fixed tenure in which account holder deposits fixed amount every month and get the lump sum amount at maturity. This offers a higher rate of interest on deposit than the saving account.

Investment in Bank fixed deposit/Recurring deposit is considered comparatively safer than investments in stocks or mutual funds. Each deposit in a bank is insured up to a maximum of Rs 5 lakh under the Deposit insurance and credit guarantee corporation (DICGC) rules.

Mutual funds

Mutual fund is an investment avenue that provides opportunity to small investors to access a well-diversified portfolio of equities, bonds and other securities depending upon the investor’s time horizon, risk appetite and return expectation. In mutual funds, the fund manager trades the fund’s underlying securities, realizing capital gains or losses in tune with the scheme objective, and collects the dividend or interest income. On redemption, the net asset value proportionate to the units redeemed by the investor is paid back to the individual investors.

Since it is managed by professionals, Prospects of getting good returns are high as compared to the related market risks. However, mutual funds investments are not risk free and do not carry any guarantee of returns.

National Pension Scheme:

It is a retirement-oriented investment product managed by pension fund managers under the regulations of Pension Fund Regulatory and Development Authority. Under this scheme the contributions of the investor/employer are accumulated to build a corpus on attaining the age of retirement and then paying to the investor as pension for the selected period.

Public Provident Fund:

It is an investment avenue in which the interest earned and the principal invested is backed by sovereign guarantee.  This guarantee makes it a safe investment. its tenure is 15 years therefore suitable only for long term investment plans.   Salaried or non-salaried both categories of individuals can open a PPF account. This account can be opened by Investor on behalf of a minor or HUF also. NRIs can also open PPF account. The invested amount subject to a cap of Rs 150000 per year is considered for tax exemptions under section 80C of Income Tax Act. Interest earned on accumulations of PPF account is also tax Free.

Gold

Investment in gold can be made in physical/Paper form. Physical gold in form of jewelry or coins can be purchased from market or banks but it carries risk of theft or loss. Paper gold is a better option of investment in form of Gold ETF and Gold bonds.

Real Estate

An investor can invest in real estate like land, building, Farm houses, commercial properties etc.  The real estate asset purchased for self-use should not be considered as an investment like your house you are living in is not your investment. This investment is capital intensive.

General Comparison of investments at a glance

Investment AvenueReturn prospectsRisk involvedFundamental featureBest suitable to
Equity SharesHigh for long investment horizonHighDemat account is must. a seasoned investor
Bonds and DebenturesModerate returns with generally fixed incomeLowoffers higher interest as compared to other similar products like Bank & Post office fixed depositsInvestors looking for fixed income
Bank Fix DepositsLow returnsConsidered as Safe investmentinsurance coverage up to 5 lakhs Conservative investors
Mutual FundsHigh for long investment horizonModerate but as per individual scheme objectives.Proven track record of good returnsInvestors looking for growth and having long investment horizon
National Pension SchemeModerateModerateSpecially designed for retirementEvery investor looking for consistent income after retirement
Public Provident FundModeratelowHaving a lock in period, cap on investment and subjected to change in interest rate. Returns are tax freeAny salaried or non salaried person
GoldModerateLowHaving high liquidity and safetyAll investors
Real EstateModerateModerateHighly illiquid and capital intensiveAll investors
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